By Andrew Saunders
President, Castle Hill Capital Partners
In my last post, I talked about strategies and tactics for hedge fund managers to optimize the speed dating model of capital introduction event. In this post, we’ll look at the other side of the table – the investor’s perspective.
After organizing and attending 100+ of cap intro events over the past decade, I’ve noticed that there are 4 types of investor perspectives at Cap Intro events. In some cases, investors are consistently one or another, while in other formats, depending on portfolio needs, they may present as all four in one event!
Type 1: Here to learn
- These investors keep an open mind, do little prep, and have no preconceived notions
- You sit down, have a congenial conversation, don’t take notes and simply score the fund on level of interest
- You treat these conversations as exploratory, not as a level of diligence
- A significant subsection of investors attending events meet this description ~30-40%
Type 2: The Notetakers
- These investors, generally more junior, soak in all the information and take notes of everything that is said
- They are a sponge – this is an information gathering exercise
- Generally, they have little to no engagement with the manager or give them an indication of interest or next steps
- A significant constituency ~20-30%
Type 3: Done Homework and Ready to Engage
- These investors come well prepared and have a plan for each meeting
- They’ve read the materials and have specific questions to ask
- Often they engage in nuanced debate on specific trades
- Are in the distinct minority ~10-20% of investors
Type 4: Current Investors Checking In
- Frequently use the opportunity to efficiently get an update as part of investor ongoing diligence
- Conversation often drifts to a general update
- Minority 0-10% of investors depending on the event and format
Speed dating events provide investors the opportunity to review several strategies at one time with few distractions. Accepting the premise that we’re all in this cap intro speed dating exercise to achieve a positive outcome – and not just have free drinks and be doted upon – here is what you can do to optimize your outcome and manage the expectations of the people you are meeting.
Investors should have Situational Awareness:
- You are a target.You are a dollar sign sitting across the table. Managers view you as a ticket, a potential allocation.
- While managers are your “peers” in the context of the alternative investment ecosystem, generally there is a power asymmetry in this format. Managers pay (often a lot), managers present, managers are eager to optimize the ROI on the event and even more eager to grow their fund. Investors, meanwhile, attend for free and the only obligation is to listen.
- Managers talk…and more specifically, marketers talk…especially the good ones. The ranks of professional, successful alternative asset raisers is remarkably small. While they compete for capital and investor attention, they also communicate and share intelligence on an ongoing basis. Unvarnished investor impressions are shared within these trusted networks.
Recognizing the significant stakes imbalance, you can optimize each interaction to the benefit of everyone at the table by following these few tips.
Before the Event:
- Provide information on your current areas of interest to the cap intro team or the conference organizer. For example, if you are looking for exposure to healthcare– be specific. If you are looking for lower net managers, be specific and if you are never going to invest in a specific strategy e.g. quant or manager under $50 mln etc. – then make that clear.
- Articulate the outcome expectations for your alternatives portfolio, for example, if you are return maximizing then certain strategies won’t work, or if you are looking to dampen volatility, then that may remove high return, low Sharpe strategies from consideration.
- Spend some time – any time – reviewing the managers you are going to meet before you sit down. It will be a more productive interaction if you know the strategies, the team backgrounds the AUM and return quality at a high level. There is nothing so jarring than launching into the investment story and having an investor say “Oh – you’re $150 mln? I can’t do anything with this!” or “You’re 75% net long? I only do market neutral.”
At the Event
– Be prepared to provide a brief introduction of yourself to the manager at the beginning of the meeting. This will pay dividends in terms of guiding the managers where to start their story and tailor their presentation accordingly depending on background, knowledge levels and experience in the strategies. But please keep it to 1-2 minutes – the meeting is not all about you! I’ve seen investors speak for 15 of 30 minutes…and watch managers squirm with discomfort.
– Track the meeting notes on the 1-pager you receive from the manager, in your CRM/Evernote system or on your own scoresheet. The investors that I’ve observed that maximize the opportunity create their own tally sheet and identify key issues with a simple ranking system for next steps. Key elements include the name of the fund, the strategy, s simple rank and space for notes. After meeting managers all day plus breakfast, lunch and dinner meetings, it’s tough to remember which manager is which. Keep track by writing on the corner of the fund’s one pager: use shorthand by adding a code such as 1,2,3 for Fit, Potentially Fit or Never a Fit.
– The final step is to outline next steps and interest level…and here I suggest being as frank as possible. Give an indication of potential interest level and time frame for next steps. If you know you have an investment committee meeting in 3 months and nothing is going to happen until that is over, then guide toward following up in 6 months. If you are unlikely to invest in a strategy because of a bad experience in a particular strategy/asset class (as opposed to a structural impediment of AUM or track record), then please share this experience. It’s a win – win. You would prefer not to have your inbox clogged with follow-up and managers would definitely prefer to not send emails and voicemails into the abyss.
A Final Word – It’s a Small World – Reputation Matters
Allocators who are used to being on the investor side of the table – and have always been an investor – can’t contemplate not being an investor…but one day you may not be. Awkwardness of sentence structure notwithstanding, in this market environment of disruption, investors are pivoting to other roles, to single strategy management, to placement agent businesses or to raising single strategy vehicles. If you do, you might wish your network was bigger and you had a reputation of being a straight shooter and not wasting anyone’s time. Cap intro events and conferences offer an excellent opportunity to build out your network and reputation. Be pleasant, helpful if possible and direct. That’s the only expectation!